IC Markets Europe Fundamental Forecast | 6 March 2024
What happened in the Asia session?
The Australian economy expanded 0.2% QoQ in the fourth quarter of 2023 in line with market expectations. This marked the ninth consecutive period of quarterly growth but it was also the softest pace in five quarters as household spending was subdued while government expenditure notably slowed and fixed investment fell. The Aussie rose following the release of this data point, rising from 0.6495 to as high as 0.6515 by the end of the Asia session.
What does it mean for the Europe & US sessions?
It is an extremely heavy calendar during the US session with Federal Reserve Chairman Jerome Powell delivering his testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Traders will be keeping a sharp eye out on any indication of future interest rate cuts as it is bound to be a volatile period for currency markets during this testimony.
Meanwhile, markets will also get its first taste of key employment data this week as the ADP employment and JOLTS job openings reports are lined up during the US session. Should both set of reports highlight a growing labour market, the dollar could see significant demand.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (1:15 pm GMT)
Fed Chair Powell Testifies (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from DXY today?
It is an extremely heavy calendar during the US session with Federal Reserve Chairman Jerome Powell delivering his testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Traders will be keeping a sharp eye out on any indication of future interest rate cuts as it is bound to be a volatile period for currency markets during this testimony.
Meanwhile, markets will also get its first taste of key employment data this week as the ADP employment and JOLTS job openings reports are lined up during the US session. Should both set of reports highlight a growing labour market, the dollar could see significant demand.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 19 to 30 March 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
ADP Employment Report (1:15 pm GMT)
Fed Chair Powell Testifies (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from Gold today?
It is an extremely heavy calendar during the US session with Federal Reserve Chairman Jerome Powell delivering his testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee. Traders will be keeping a sharp eye out on any indication of future interest rate cuts as it is bound to be a volatile period for gold during this testimony.
Meanwhile, markets will also get its first taste of key employment data this week as the ADP employment and JOLTS job openings reports are lined up during the US session. Should both set of reports highlight a growing labour market, the dollar could see significant demand and potentially drive this precious metal lower.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
GDP (12:30 am GMT)
What can we expect from AUD today?
The Australian economy expanded 0.2% QoQ in the fourth quarter of 2023 in line with market expectations. This marked the ninth consecutive period of quarterly growth but it was also the softest pace in five quarters as household spending was subdued while government expenditure notably slowed and fixed investment fell. The Aussie rose following the release of this data point, rising from 0.6495 to as high as 0.6515 by the end of the Asia session.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst-performing currencies as it fell to a low of 0.6070 as Asian markets came online. Overhead pressures remain for this currency and it is likely to edge lower as the day progresses.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen remains weak in comparison to the dollar causing USD/JPY to remain elevated this week. This currency pair hit an overnight high of 150.50 before falling as low as 149.70 – it found support around this level at the beginning of the Asia market and then proceeded to climb above 150.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
German Trade Balance (7:00 am GMT)
Retail Sales (10:00 am GMT)
What can we expect from EUR today?
Germany – the industrial powerhouse of Europe – has seen its trade surplus increase noticeably over the past couple of months with December’s figures coming in at €22.2B, growing 25% over this period. Should this surplus continue to grow for the month of January, it could provide a lift for the Euro.
Meanwhile, retail sales for the Eurozone declined 1.1% MoM in December – the largest drop since December 2022 – as high borrowing costs continue to weigh on consumer demand. January’s estimate of 0.1% points to a meagre month of growth and if sales surprise to the upside, the Euro could receive yet another bullish catalyst during the European trading hours.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 7 March 2024.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc remains weak in comparison to the dollar causing USD/CHF to remain elevated this week. This currency pair hit an overnight high of 0.8865 before falling towards 0.8820 – it found support around this level as Asian markets came online and then proceeded to climb above 0.8850.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Annual Budget Release (Tentative)
Construction PMI (9:30 am GMT)
What can we expect from GBP today?
The UK will release its 2024 budget for borrowing levels, government spending and planned investments to boost the country’s economy and support the overall welfare of its citizens. Should we see a well-balanced budget with increased spending to boost GDP growth, the Pound could receive a nice boost.
February’s Construction PMI will also be released today and is set to indicate a sixth month of contraction. Although business optimism for this sector hit a two-year high for the month of January, order books were subdued while house-building remained the worst-performing segment. A weaker-than-anticipated reading could put the Pound under pressure.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Rate Statement (2:45 pm GMT)
BoC Press Conference (3:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will release its monetary policy statement where they are widely expected to maintain their overnight rate at 5.00% for the fifth consecutive meeting. With headline and core CPI both easing significantly towards the BoC’s inflation target of 2%, the central bank is in no hurry to cut rates anytime soon until inflation is well-anchored around this target.
With GDP growing steadily on a monthly basis from November 2023 to January 2024, there is no major justification for any rate cuts to stimulate the economy either. Should the statement and Governor Tiff Macklem’s press conference communicate a neutral outlook on future monetary policy action, the Loonie could come under selling pressure to provide a strong tailwind for USD/CAD.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation, and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
After growing strongly over the past three weeks, the API stockpiles finally experienced a much smaller build of 0.4M barrels versus the estimate of a 2.6M-increase. This latest build was also much lower than the 3-week average of 8M barrels. However, prices for crude oil fell overnight with WTI oil losing nearly 0.7% to fall as low as $77.60 per barrel on scepticism in relation to China achieving its economic growth target of around 5% for 2024 following their annual parliamentary meetings on economic policy. The lack of big-ticket stimulus plans to prop up the country’s struggling economy disappointed investors and weighed on crude prices. Overhead pressures continue to build for this commodity.
Next 24 Hours Bias
Weak Bearish
